President Trump has consistently championed the idea of challenging major pharmaceutical companies and repatriating manufacturing jobs. However, his eagerly anticipated announcement on Thursday introduced a 100 percent tariff on imported brand-name medicines, a move that surprisingly seems to grant a significant break to many of the wealthiest drug manufacturers.
The majority of brand-name drug manufacturing by large corporations already takes place either within the United States or Europe. Well-known examples include Botox, produced in Ireland, and widely popular weight-loss medications manufactured across Denmark, Ireland, and the U.S.
Notably, Mr. Trump’s 100 percent tariff, slated for implementation on October 1st, won’t impact drugs imported from the European Union. Instead, most brand-name products originating from the EU are expected to face a tariff of up to 15 percent, a rate established through a summer trade agreement. The exact start date for this lower tariff remains uncertain.
However, major pharmaceutical players like Roche, Novartis, and AstraZeneca conduct some manufacturing in their home nations of Switzerland and Britain, neither of which are part of the European Union. To bypass the hefty 100 percent tariffs on these specific products, these companies would likely need to inform the Trump administration of their intention to relocate a portion of this production to the United States.
While these highest tariffs could also impact brand-name manufacturing in countries such as Singapore, China, and India, these regions represent a comparatively small percentage of the brand-name drugs consumed by Americans.
The President initially announced these tariffs via a social media post on Thursday evening, leaving many critical details vague. An administration official clarified on Friday that a formal proclamation outlining the policy is anticipated next week.
Initially, Mr. Trump’s social media statement indicated that companies actively building factories in the U.S. would be exempt. However, the administration official clarified on Friday that this manufacturing exemption would not be a blanket pass for all of a company’s products, but rather apply exclusively to drugs manufactured domestically.
Furthermore, companies could secure a temporary tariff exemption for drugs while new U.S. factories are under construction. For instance, if a company manufactures a heart disease drug in Ireland but is simultaneously establishing a production facility for that same drug in North Carolina, it can apply to the Commerce Department for a 15 percent tariff exemption during the five-year transition period.
Consequently, many leading industry players may largely avoid the full 100 percent tariffs, though they will likely soon face up to a 15 percent tariff on certain drugs imported from Europe.
The tariffs on European imports could lead to slight price hikes for some brand-name medications, potentially increasing out-of-pocket expenses for American consumers.
Significantly, older, more affordable generic drugs, which constitute the vast majority of prescriptions in America, will be entirely exempt from both the 100 percent tariffs and the European tariffs of 15 percent or less, an administration official confirmed on Friday.
Although a substantial portion of raw drug ingredients originates from China, these tariffs will target later stages of the drug manufacturing process. Factories in India and China primarily concentrate on generic drug production, though a lesser amount of active ingredients for brand-name drugs are also produced there.
In anticipation of these tariffs, the largest pharmaceutical companies have already initiated multi-billion dollar investments in constructing or expanding manufacturing facilities across the United States.
Recent examples include major players like Johnson & Johnson, Eli Lilly, Merck, Gilead Sciences, Roche, GSK, AstraZeneca, and Novo Nordisk, all of whom have commenced construction on new factories in states such as North Carolina, Indiana, Delaware, California, Pennsylvania, and Maryland.
“Overall, we think this is a win for Pharma,” analysts at the Wall Street bank Jefferies concluded in a Friday note to investors. Indeed, major drugmaker stocks saw little change or slight increases on Friday.
For months, concerns have mounted that Mr. Trump’s proposed drug tariffs could lead to higher prices and critical drug shortages for American patients. However, given the significantly scaled-back tariffs announced on Thursday, the ultimate impact on many popular and widely-used medicines remains uncertain.
Conversely, these tariffs could severely penalize a distinct group of companies: smaller manufacturers of brand-name drugs. Many of these lesser-known firms produce medicines in countries like Canada, Mexico, or the Middle East and lack the financial capacity to invest billions in new U.S. manufacturing facilities.
John Crowley, president of the Biotechnology Innovation Organization, a trade group representing biotech companies and most large drug manufacturers, issued a statement affirming that the tariffs would specifically impact “small and mid-sized” companies.
Experts voiced apprehension regarding potential disruptions and increased prices for niche products manufactured overseas by smaller companies unable to invest in new American facilities.
“It’s likely that the companies that will be affected are certain smaller companies that are making more niche products,” explained Dr. Aaron Kesselheim, a professor of medicine at Harvard Medical School and Brigham and Women’s Hospital. “That could be problematic for those particular patients.”
Unlike pharmaceutical giants, which often enjoy substantial profit margins from blockbuster drugs such as Merck’s world-leading cancer medication Keytruda, smaller companies frequently operate on tighter margins. A 100 percent tariff could force these smaller firms, manufacturing their brand-name products in Canada, Mexico, or the Middle East, to consider discontinuing sales or selling off their drug assets.
“A smaller niche brand-name drug that does not have as high of profits as the Keytrudas and GLP-1 drugs of the world might feel more pressure,” Dr. Kesselheim elaborated, referencing the highly popular class of weight-loss medications. “There is the possibility that that would lead to shortages and disruptions in the supply.”
For a smaller brand-name company suddenly hit with a 100 percent tariff—a burden it simply cannot absorb—the course of action is starkly apparent.
“You have to account for these tariffs and raise the price,” stated John Maraganore, former CEO of Alnylam Pharmaceuticals and past chair of the Biotechnology Innovation Organization. “Especially if it’s a single product company that depends 100 percent on that one product, that’s what you naturally do, which of course doesn’t help the American consumer.”
Peter Kolchinsky, a Boston-based biotechnology investor, suggested that Mr. Trump’s tariffs “might leave smaller American biotech companies at a huge disadvantage to big multinationals.” He emphasized, “Hopefully the final language gives them time to contract to build in the U.S. or we’ll lose a lot of American jobs in innovation.”
The pharmaceutical industry boasts a formidable and influential lobbying presence in Washington. In the lead-up to these tariffs, the industry vigorously advocated for and successfully obtained exemptions, mirroring those outlined in Mr. Trump’s Thursday announcement.
Despite these tariff considerations, major drugmakers are still contending with other significant pressures from the Trump administration. Earlier on Thursday, the administration hinted at plans to compel drugmakers to reduce certain U.S. prices to match lower European rates. Additionally, officials have indicated intentions to pursue a regulatory overhaul that could remove prescription drug advertisements from television.
Notwithstanding their investments in new U.S. facilities, the largest companies do not intend to cease overseas production for many of their medications. Even with partial shifts to American manufacturing, drugmakers highly value their European production bases, recognizing Europe as a crucial market. Crucially, they now stand to save billions of dollars they had previously anticipated spending on significantly higher pharmaceutical tariffs.